Steel import share to come down with capacity augmentation

Commodity demand outlook in the first 2 quarters of the current fiscal raises hope that it would be sustained in the coming months. A positive scenario on steel demand is primarily reflected in the market realisation of the products which is buoyant.

Steel import share to come down with capacity augmentation

Commodity demand outlook in the first 2 quarters of the current fiscal raises hope that it would be sustained in the coming months. A positive scenario on steel demand is primarily reflected in the market realisation of the products which is buoyant. HRC as the mother product has been observing a rising trend in both domestic and global markets. The Chinese export prices for HRC SS 400 grades have increased from $550/t fob Tianjin port in August’17 to $567/t in September’18.

Corresponding increase in domestic prices were from `42,800/t ex-works (GST extra) to Rs 46,350/t ex-works during the last 13 months. The Rebar export price from Turkey went up from $498/t fob Turkey to $504/t, a nominal rise during the period. Thus flat price rise was more than the long prices. The rise in finished product realisation were restricted by increase in prime coking coal prices from $ 180/t fob Australia in August’17 to $205/t in September’18. In addition Iron ore prices (62% Fe) increased from $60.25/t fob China to $69.6/t during this period.

It is interesting to note that steel consumption in the country at 39.5 MT has grown by7.9% in the first 5 months of the current fiscal. Growth in Infrastructure and construction sectors (8.1% rise in April-July’18) duly supplemented by manufacturing and Industrial production (5.6% rise and 5.4% respectively in April-July’18. The short range outlook by WSA has estimated the global steel market to grow by 2.6% and 1.0% in 2018 and 2019.) India’s steel consumption has been estimated to grow from 95.4 MT in 2018 to 102.3 MT in 2019 which would put India second to China by surpassing USA’s steel consumption level.

Another indicator of growing market is continuation of import flow. It is seen that around 66.3% of import flows are still coming from 3 sources, namely, South Korea, Japan and China.

Installed steel capacities have gone up from 128 MT on 31st March’17 to 138MT as on 31st March’18. Therefore the market growth of 7.9% raises hope and confidence that adequate market growth would support the capacity enhancement in India. The question to ask is who is taking the benefit of market growth- domestic players or imports.

The answer lies in analysing the market share of each component.

During FY15 the share of imports was 12%, it went up to 14.4% in FY16. The decline in share of domestic players along with dumping of steel from China, CIS and other countries coupled with massive volume of imports flowing to India from South Korea and Japan taking advantage of progressively reducing duty rates under RCEP agreements, the intervention of the government was timely and appropriate in the form of MIP, Safeguard and AD. As a result of these interventions, the share of imports in steel consumption in India dropped down to 8.6% in FY17. It came to occupy 8.2% share in FY18. The first 5 months of the current fiscal brought the share marginally higher at 8.42%.

For the domestic players it becomes critically important to enhance availability either by higher capacity utilisation or by incremental supply from the newly installed capacity. The increased demand for steel arising out of enhanced inventory accumulation or to execute new orders, make new products, all these have to be catered to within a specific time period.

The demand once not fulfilled would never come back as there are many ways and means to fulfil the demand. Thus in the context of rising demand, delayed supply from any producer leads to loss of market share and additional revenue generation. Also the various special grade steel envisaged at DPR level must be realised at the earliest in order to achieve higher realisation and take hold of the niche market.

Making available the import substituting items from the newly installed capacities would save precious foreign exchange and contribute to improving the Current Account Deficits.

Product wise during the first 5 months, in respect of HRC, the highest market share goes to JSW , followed by Tata Steel. For Rebars, the highest share (65%) goes to SME sector followed by Tata, JSW and SAIL.

It is well established that in long products (TMT, Structurals and Railway materials) the share of SME sector is predominant at 65%. In the flat product category, the highest share is taken by JSW followed by Tata and by SAIL. Now that Bhusan steel has been taken over by Tata steel, the share of TSL in flat products would go up.

With Dolvi modernisation complete and expansion realised at Bellary, the share of JSW in flat categories (HRC, CRC, Plates, Coated products, Pipes and Tubes) would also enhance.

Therefore capacity augmentation during the phase of rising demand specifically from the Brown field projects must come early without delaying the project schedule. To earn higher market share continues to remain the single focus area for all the domestic players. Rising share of imports is to be strictly monitored by maximising supplies to all segments of the economy.